Core Banking Systems (CBS) Information Systems in the Banking Sector

Traditional Banking systems Traditionally: the banks adopted systems developed in-house or used vendor provided systems on a decentralized basis, ad hoc solutions were implemented on piecemeal basis, i.e. separate modules and technology platforms for key operations such as deposit mobilization and lending, trade finance, treasury operations, and more recently card transactions.

Traditional Banking systems contd Challenges of using traditional (legacy) systems Old programming languages Inflexible systems, not scalable Difficult to integrate with new systems Batch processing as opposed to real-time processing Account-centric as opposed to customer centric

Changes in Banking Systems Regulatory demands and customer demands are driving change in banking business strategy and business models. The banking value chain has evolved from being strictly an organisation that intermediates between depositors and borrowers to a one-stop financial institution that offers a wide array of financial products and services, across retail, corporate and investment banking.

Business Drivers in Banking Business Drivers that are driving transformation in banking systems (the 4 Cs) Consolidation Non-bank institutions now offer banking products e.g. loans Banks now need to offer a bundle of products and services e.g. loans, mortgages, credit cards, insurance, investment banking, etc

Business Drivers in Banking contd Customisation Need to personalise products based upon the customer’s specific needs, e.g. Price attributes Frequency, format and details of statements/ RSS Balance and balance charges for different accounts Marketing alerts Preferred channels of transactions and communication etc Ability to define a product for each customer rather than selecting from a standard set Banks now need systems with Customer Relationship management capabilities

Business Drivers in Banking contd Convenience ‘Anytime and Anywhere’ is changing to include ‘Any How’ Convenient delivery channels Access to services 247 Convenience for the un-banked population: ‘Doorstep banking’ in rural areas Concern Quality of service and the need for being recognised as a customer stands out as a reason customers are loyal to a bank. Need to interact with customers on a more immediate basis

Business Drivers in Banking contd Due to these business drivers, banks need a different structure and supporting infrastructure to address the evolving customer dynamics.

Core Banking Systems (CBS) The sum of all IT components that allow a banking institution to develop, process and manage its basic financial products and services effectively (SAP/ Accenture). These financial products and services include: Basic client data, Deposit accounts, Loans and mortgages, Payments and cards, Statement production.

See diagram titled: Financial Services Architecture CBS facilitate "Anywhere Banking” operations like ATM's, Electronic Fund Transfers, Telebanking, Internet banking etc. Supports ‘bank banking’ along with ‘branch banking’.

CBS Features Any technology platform that supports core banking operations needs to address the following criteria: Reliability Scalability Availability: always-on capabilities Manageability: tools for performance monitoring, troubleshooting Security: encryption, auditing changes to data

CBS Technology Components Hardware platform: Desktops, printers, laptops, Servers. Could be HP, Dell, IBM, etc Software: CBS Software e.g. T24, Flexicube, Finacle, etc. Operating system e.g. Linux, Windows, UNIX Data resources: Database technology e.g. Oracle, SQL, Network resources LAN, WAN

CBS Functional Architecture Several layers Layer 1: Distribution Channels Supports delivery channels: internet, mobile via SMS, call centre, IVR via phone Layer 2: Customer Layer Customer information, transaction history, customer profitability, groups, etc Layer3: Main Modules Retail, treasury, corporate, general Layer4: Support Modules General ledger, risk, SWIFT, development tool-kit Layer 5: Security

Flexicube architecture FLEXCUBE Integration Layer (Web Services) Flexicube architecture DELIVERY CHANNELS Internet Banking FLEXCUBE Branch ATM POS IVR Mobile PDA FLEXCUBE Integration Layer (Web Services) RETAIL FUNCTIONALITY CORPORATE FUNCTIONALITY SERVICES RISK MANAGEMENT INFORMATION DELIVERY Other i-flex solutions, e.g., Deposits Credit Loan Syndication/ Project Loans Foreign Exchange Sweeps Decisioning Engine Integrated Account Statements Investor Services Savings/ Current Accounts Loan Origination Data Warehousing/ Analytics Term Loans Money Markets Standing Order Scoring Term Deposits Leasing / Dealer Financing / Floor Planning Cash and Liquidity Management Debit and Credit Advices Overdrafts Swaps & FRAs Recurring Deposits Signature Repository Collateral Management Revolving Loans Letters of Credit and Bank Guarantees Securities Tax Statements Certificates of Deposit Institutional Delivery, e.g., Nostro Reconciliation Central Limits Collections Futures and Options ACH / RTGS Retirement Accounts Bills and Collections Mails, Emails, SMS and Alerts Safe Deposit Box Utility Payments NPA Management SWIFT / SEPA EUROCLEAR BUSINESS SUPPORT SYSTEM Reuters / Bloomberg Relationship Pricing Interest Plans Tax Controls Service Charges Inventory Management Funds Transfer External Systems, e.g., ENTERPRISE FUNCTIONALTY Insurance Systems General Ledger Customer Information System Risk Management Clearing Fixed Asset Management Regulatory Reporting TECHNICAL SUPPORT SYSTEM CRM Systems API Process Orchestrator (BPEL) Generic File Upload / Extract Utility Statementing INFORMATION MANAGEMENT Credit Card Systems Management Information System Reporting Universe User Defined Data Elements Canned Reports Credit Bureaus 14

CBS Vendors TEMENOS Company i-flex Solutions Ltd Company products: T24; eMerge; GLOBUS; TEMENOS CoreBanking (TCB) i-flex Solutions Ltd Company products: Flexcube; Microbanker; Finware Infosys Technologies products: Finacle

Benefits of Using CBSs One stop fulfilment Reduced operating costs CBSs provide an integrated solution to address a range of financial services ranging from retail banking, corporate banking to investment banking. No need to integrate systems from multiple vendors Reduced operating costs Costs have been slashed as much as 90% from using CBSs Savings on process efficiency Handle high transaction loads, and many customer accounts at minimal cost

Better risk management capabilities CBSs provide a total view of risk exposure across the enterprise through centralised tracking of customer limits Improve customer intimacy CBSs allow the creating of customised products Low-risk implementation Rapid implementation and reduced project risk Vendor support

Increased management control CBSs provide real-time information for management decision making Enhanced security features

Technology Risks in the banking Sector disruption to core banking and payment services Mitigated by developing Business Continuity Plans and setting up Backup Systems and Disaster Recovery Sites. Security beaches (hacking) Audit processes